Your Value-Based Pricing Frequently Asked Questions Answered

I’ve been getting lots of questions about value-based pricing lately, and I’ve rounded up some insights to help you evaluate whether or not this pricing model might be right for you.

Q: What is value-based pricing?

When you sell professional service, there are three things you can price and sell:

You can sell the inputs = Time and materials.

You can sell the outputs = Deliverables such as a website, a report, a tax return, a brief, etc.  

These are both cost-based pricing models. The price is based on how much it will COST YOU to deliver the solution. 

Value-based pricing takes this a step further. 

The focus is on the outcome of the solution for the client. Put another way, the value you create on their behalf. This pricing model is rooted in the idea that, in addition to receiving compensation for the solution (what it costs you), you're also compensated for the value you create for your client above and beyond the solution. For example, a community of subscribers to an app, a percentage of sales from a website, an annual tax strategy resulting in paying less taxes, etc. 

Q: How can I identify and quantify the benefits and outcomes that my service provides to clients?

It’s easier than you think. One way is to start with an outline of the services you offer and some common outcomes you have achieved with your most successful clients. Or, check out 2Bobs (if you've been here before, you know I'm a fan!) According to 2Bobs there are four distinct sales conversations you should have with a prospective client. Each one builds on the previous.

Through each conversation, you gain the insights needed to qualify the client relationship, define the scope and objectives for the project, and understand any potential objectives or major obstacles. This information helps you to define your unique advantages in context to their specific problem highlighting the true value that comes from working with you to improve their business and contribute to their long-term success. 

Q: What are some potential drawbacks to implementing a value-based pricing strategy?

This strategy is not a silver bullet and, like anything else, there are pros and cons. Three common areas that can make implementing this approach more difficult are:

Clients can’t articulate the goals.

Businesses unfamiliar with this approach may be unable to articulate the outcomes they desire or why they are needed. You can spin your wheels trying to define them - and that’s time you’re not being paid. 

It’s more complicated.

Because there are multiple steps and there is more time needed to educate a potential client, this is a more complex model than time and materials or project-based pricing. 

You need strong project managers.

It takes expertise, operational efficiencies, and a functional understanding of your operational costs to ensure you don’t lose money. 

Q: Should you only use a value-based model with an established client?

While this type of model can be used for new clients, it’s easier to implement with a client you have an established relationship with. There’s a lot of trust involved in value-based pricing because there are no guarantees.

Think of a client you have a long-term relationship with; maybe they have a new one-off project on the horizon. This could be the time to test this model because you’ve built a deep trust with this client and you have an impressive track record to reinforce the perception you can achieve the desired result.  

As you're thinking about your pricing model and how you approach pricing for clients, start asking yourself, If I’m creating immense value for my clients, shouldn't I be compensated for that?

I’m in your corner and I think you should! 

And, if you’d like more sales insights and tips, follow me on LinkedIn and sign up for The Sales Mindset Blueprint.